After Pfizer (PFE) announced earlier this week that it will sell a biosimilar version of Remicade, the blockbuster rheumatoid arthritis treatment, Johnson & Johnson (JNJ) executives are scrambling to calm investors who worry the health care giant will quickly lose a big chunk of revenue.
That’s because Pfizer plans to sell Inflectra at a 15 percent discount to Remicade, which generated roughly $1.2 billion in sales for Johnson & Johnson in this year’s first quarter. A biosimilar, you may recall, is a nearly identical variant of a biologic and is expected to provide the same result in patients, which means the Pfizer medicine is poised to eat into Remicade sales. The question, though, is by how much?
There’s no question Remicade sales will take a hit. Initially, some Wall Street forecasts looked for $1 billion in lower revenue next year. But now, some wags believe the damage may not be as great. Wells Fargo analyst Lawrence Biegelsen, for instance, now looks for Remicade sales to drop by $600 million next year, which is still a lot, but not $1 billion. The concerns are “overblown,” he wrote investors.
Why? Yes, Johnson & Johnson will have to compete on price, but Remicade is already sold at a 30 percent discount off the list price of $1,113.26 per 100 mg vial, which works out to $28,945 per year. Biegelsen opines that further discounting is likely to be “modest,” since he does not expect Pfizer to aggressively discount Inflectra very much in a two-player market and create a price war.
Moreover, Johnson & Johnson maintains it has an advantage because Inflectra is not interchangeable with Remicade. While a biosimilar is supposed to be highly similar to a biologic, interchangeability confers a higher threshold — this is a distinct regulatory description for a biosimilar producing the very same clinical result as a biologic. The US Food and Drug Administration has yet to issue guidance on interchangeability. So for now, this may make it harder for Pfizer to compete on price.
“From a biosimilar implementation perspective, we believe that a lack of formal guidelines on interchangeability and multiple switch studies [which would be used to convince doctors to switch between drugs] could initially limit Inflectra uptake,” wrote Barclays analyst Geoff Meacham in an investor note. “We expect Pfizer to act rationally on price.”
However, the results of a study in 480 patients that was funded by the Norwegian government found that switching from Remicade to Inflectra did not yield a statistical difference in outcomes. The biosimilar was also determined to be equally safe. The findings could be used by payers as ammunition to provide coverage, if not favor, the biosimilar version and also bolster comfort levels among physicians.
There is yet another reason, though, that some Wall Street wags are not wringing their hands. In their view, Johnson & Johnson may also successfully wield its clout with payers by bundling many of its drugs into a sort of package deal. In other words, a health plan will wind up paying a price that Johnson & Johnson wants for Remicade, because the health care giant has the ability to offer a bevy of medicines.
Of course, these arguments constitute a glass-is-half-full view toward Johnson & Johnson, since the health care giant will still have to compensate for a drop in Remicade revenue. In discussing its latest quarterly earnings yesterday, Joaquin Duato, who heads the pharmaceuticals unit, told The Wall Street Journal that the company is working on 10 line extensions on existing products that could add more than $500 million in sales to each of the products, and 10 new drugs that could have $1 billion or more in sales.
This is more than a stock story, however.
The larger issue is the extent to which biosimilars produce significant savings for the overall health care system. For years, analysts anticipated biosimilars would be priced at 20 percent to 30 percent less than the brand-name biologics, but the Inflectra example suggests this may not always be the case. And some drug makers have been raising prices on their biologics as biosimilar competition nears. As the Journal noted, the list price for Remicade his risen 69 percent since 2010.